INDEPENDENT DIRECTORS 2 LEGAL FRAMEWORK Companies
Description: INDEPENDENT DIRECTORS 2 LEGAL FRAMEWORK Companies Act, 2013 Section 2(47), 149, 150, 160 Chapter XI Rules Companies (Appointment Qualification of Directors) Rules, 2014 as amended time to time Schedule IV of Companies Act, 2013 Code
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slide1. INDEPENDENT DIRECTORS<br>
slide2. 2 LEGAL FRAMEWORK Companies Act, 2013 – Section 2(47), 149, 150, 160
Chapter XI Rules – Companies (Appointment & Qualification of Directors) Rules, 2014 as amended time to time
Schedule IV of Companies Act, 2013 – Code for Independent Directors
SEBI (LODR) Regulations, 2015<br>
slide3. 3 REQUIREMENT OF LAW<br>
slide4. 4 COMMITTEES & MEETINGS<br>
slide5. 5 DEFINING THE ID<br>
slide6. 6 WHAT DEFINES AN ID ? Independent Director is defined under section 2(47) independent director” means an independent director referred to in sub-section (6) of section 149;
Regulation 16 (1)(b) of SEBI (LODR) Regulations, 2015 defines independent director" means a non-executive director, other than a nominee director of the listed entity.<br>
slide7. 7 PRE-REQUISITE FOR BEING THE ID<br>
slide8. 8 QUALIFICATION RULE 5
Companies
(appointment & qualification)rules Research Law and
Finance Sales and
Marketing Corporate Governance Administration and Management Technical Operations or discipline related to company business 06 01 02 03 04 05 Corporate Governance<br>
slide9. 9 PROHIBITIONS SECTION 149(6) of Companies Act, 2013 who is or was not a promoter of the company or its holding, subsidiary or associate company;
who is not related to promoters or Directors in the company, its holding, subsidiary or associate company;
who has or had no pecuniary relationship, other than remuneration as such director or having transaction not exceeding ten per cent. of his total income or such amount as may be prescribed, with the company, its holding, subsidiary or associate company, or their promoters, or Directors, during the two immediately preceding financial years or during the current financial year;
none of whose relatives:-
is holding any security of or interest in the company, its holding, subsidiary or associate company during the two immediately preceding financial years or during the current financial year.
is indebted to the company, its holding, subsidiary or associate company or their promoters, or Directors, in excess of such amount as may be prescribed during the two immediately preceding financial years or during the current financial year.
has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or Directors of such holding company, for such amount as may be prescribed during the two immediately preceding financial years or during the current financial year;<br>
slide10. 10 PROHIBITIONS SECTION 149(6) of Companies Act, 2013 has any other pecuniary transaction or relationship with the company, or its subsidiary, or its holding or associate company amounting to two per cent. or more of its gross turnover or total income singly or in combination with the transactions referred to in sub-clause (i), (ii) or (iii).
who, neither himself nor any of his relatives—
holds or has held the position of a key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed;
is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of;
a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or
any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent. or more of the gross turnover of such firm;
holds together with his relatives two per cent. or more of the total voting power of the company; or
is a Chief Executive or director, by whatever name called, of any nonprofit organisation that receives twenty-five per cent. or more of its receipts from the company, any of its promoters, Directors or its holding, subsidiary or associate company or that holds two per cent. or more of the total voting power of the company<br>
slide11. 11 DECLARATION BY ID u/s 149(7) Every independent director shall at the first meeting of the Board in which he participates as a director and
Thereafter at the first meeting of the Board in every financial year or
Whenever there is any change in the circumstances which may affect his status as an independent director, give a declaration that he meets the criteria of independence as provided in sub-section (6) of 149.<br>
slide12. 12 CODE FOR ID – SCHEDULE V<br>
slide13. 13 CODE - GUIDE TO PROFESSIONAL CONDUCT GUIDELINES OF PROFESSIONAL CONDUCT
ROLE AND FUNCTIONS
DUTIES
MANNER OF APPOINTMENT
TERM/ RE-APPOINTMENT
RESIGNATION OR REMOVAL
SEPARATE MEETINGS
EVALUATION MECHANISM
BOARD COMMITTEES<br>
slide14. 14 ROLE AND FUNCTIONS-INDEPENDENT DIRECTORS help in bringing an independent judgment to bear on the Board’s deliberations especially on issues of strategy, performance, risk management, resources, key appointments and standards of conduct;
bring an objective view in the evaluation of the performance of board and management;
scrutinize the performance of management in meeting agreed goals and objectives and monitor the reporting of performance;
satisfy themselves on the integrity of financial information and that financial controls and the systems of risk management are robust and defensible;
safeguard the interests of all stakeholders, particularly the minority shareholders;
balance the conflicting interest of the stakeholders;
determine appropriate levels of remuneration of executive directors, key managerial personnel and senior management and have a prime role in appointing and where necessary recommend removal of executive directors, key managerial personnel and senior management;
moderate and arbitrate in the interest of the company as a whole, in situations of conflict between management and shareholder’s interest.<br>
slide15. 15 DUTIES-INDEPENDENT DIRECTORS undertake appropriate induction and regularly update and refresh their skills, knowledge and familiarity with the company;
seek appropriate clarification or amplification of information and, where necessary, take and follow appropriate professional advice and opinion of outside experts at the expense of the company;
strive to attend all meetings of the Board of Directors and of the Board committees of which he is a member;
participate constructively and actively in the committees of the Board in which they are chairpersons or members;
strive to attend the general meetings of the company;
where they have concerns about the running of the company or a proposed action, ensure that these are addressed by the Board and, to the extent that they are not resolved, insist that their concerns are recorded in the minutes of the Board meeting;
keep themselves well informed about the company and the external environment in which it operates;
not to unfairly obstruct the functioning of an otherwise proper Board or committee of the Board;
pay sufficient attention and ensure that adequate deliberations are held before approving related party transactions and assure themselves that the same are in the interest of the company;
ascertain and ensure that the company has an adequate and functional vigil mechanism and to ensure that the interests of a person who uses such mechanism are not prejudicially affected on account of such use;
report concerns about unethical behavior, actual or suspected fraud or violation of the company’s code of conduct or ethics policy.<br>
slide16. 16 Regulation 25 of SEBI (LODR) Regulations, 2015: Obligations with respect to Independent Directors No person shall be appointed or continue as an alternate director for an independent director of a listed entity with effect from October 1, 2018.
The maximum tenure of independent directors shall be in accordance with the Companies Act, 2013 and rules made thereunder, in this regard, from time to time.
The appointment, re-appointment or removal of an independent director of a listed entity, shall be subject to the approval of shareholders by way of a special resolution.
The independent directors of the listed entity shall hold at least one meeting in a financial year, without the presence of non-independent directors and members of the management and all the independent directors shall strive to be present at such meeting.
The listed entity shall familiarise the independent directors through various programmes about the listed entity, including the following:
(a) nature of the industry in which the listed entity operates;
(b) business model of the listed entity;
(c) roles, rights, responsibilities of independent directors; and
(d) any other relevant information.<br>
slide17. 17 DIRECTORS AND OFFICERS LIABILITY INSURANCE If the Independent Director is found liable, either actively or passively, for any errors which have caused financial grief to any stakeholder, they will be held responsible. Independent Directors may have to contend with legal implications involving considerable financial expenses for their defense due to the sensitive nature of their work.
D & O LIABILTY INSURANCE POLICY can come to the rescue. A Directors and Officers Liability Policy covers the financial liability incurred by Independent Directors for any mistakes that they commit in the discharge of their duties. The policy covers:
Litigation costs
Settlement paid to third parties who filed the lawsuit
Personal liability suffered by Independent Directors
Expenses on regulatory or administrative inquiries launched on Independent Directors
Expenses incurred on public relations activities<br>
slide18. 18 ONLINE TEST FOR ID<br>
slide19. 19 ONLINE PROFICIENCY SELF ASSESSMENT TEST CG has notified “The Indian Institute of Corporate Affairs (IICA)” under Section 150(1) of the Companies Act, 2013 to conduct Online Proficiency Self-Assessment. IICA by complying with below rules, as amended from time to time, will conduct the test through the Independent Director’s Databank (Rule 6 of the Companies (Appointment and Qualification of Directors) Rules, 2014)
This test will be based on all relevant topics on functioning of an individual acting as an Independent Director, such as Companies Law Securities Law Basic Accountancy Corporate Governance Passing Criteria : Aggregate 50%<br>
slide20. 20<br>
slide2. 2 LEGAL FRAMEWORK Companies Act, 2013 – Section 2(47), 149, 150, 160
Chapter XI Rules – Companies (Appointment & Qualification of Directors) Rules, 2014 as amended time to time
Schedule IV of Companies Act, 2013 – Code for Independent Directors
SEBI (LODR) Regulations, 2015<br>
slide3. 3 REQUIREMENT OF LAW<br>
slide4. 4 COMMITTEES & MEETINGS<br>
slide5. 5 DEFINING THE ID<br>
slide6. 6 WHAT DEFINES AN ID ? Independent Director is defined under section 2(47) independent director” means an independent director referred to in sub-section (6) of section 149;
Regulation 16 (1)(b) of SEBI (LODR) Regulations, 2015 defines independent director" means a non-executive director, other than a nominee director of the listed entity.<br>
slide7. 7 PRE-REQUISITE FOR BEING THE ID<br>
slide8. 8 QUALIFICATION RULE 5
Companies
(appointment & qualification)rules Research Law and
Finance Sales and
Marketing Corporate Governance Administration and Management Technical Operations or discipline related to company business 06 01 02 03 04 05 Corporate Governance<br>
slide9. 9 PROHIBITIONS SECTION 149(6) of Companies Act, 2013 who is or was not a promoter of the company or its holding, subsidiary or associate company;
who is not related to promoters or Directors in the company, its holding, subsidiary or associate company;
who has or had no pecuniary relationship, other than remuneration as such director or having transaction not exceeding ten per cent. of his total income or such amount as may be prescribed, with the company, its holding, subsidiary or associate company, or their promoters, or Directors, during the two immediately preceding financial years or during the current financial year;
none of whose relatives:-
is holding any security of or interest in the company, its holding, subsidiary or associate company during the two immediately preceding financial years or during the current financial year.
is indebted to the company, its holding, subsidiary or associate company or their promoters, or Directors, in excess of such amount as may be prescribed during the two immediately preceding financial years or during the current financial year.
has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or Directors of such holding company, for such amount as may be prescribed during the two immediately preceding financial years or during the current financial year;<br>
slide10. 10 PROHIBITIONS SECTION 149(6) of Companies Act, 2013 has any other pecuniary transaction or relationship with the company, or its subsidiary, or its holding or associate company amounting to two per cent. or more of its gross turnover or total income singly or in combination with the transactions referred to in sub-clause (i), (ii) or (iii).
who, neither himself nor any of his relatives—
holds or has held the position of a key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed;
is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of;
a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or
any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent. or more of the gross turnover of such firm;
holds together with his relatives two per cent. or more of the total voting power of the company; or
is a Chief Executive or director, by whatever name called, of any nonprofit organisation that receives twenty-five per cent. or more of its receipts from the company, any of its promoters, Directors or its holding, subsidiary or associate company or that holds two per cent. or more of the total voting power of the company<br>
slide11. 11 DECLARATION BY ID u/s 149(7) Every independent director shall at the first meeting of the Board in which he participates as a director and
Thereafter at the first meeting of the Board in every financial year or
Whenever there is any change in the circumstances which may affect his status as an independent director, give a declaration that he meets the criteria of independence as provided in sub-section (6) of 149.<br>
slide12. 12 CODE FOR ID – SCHEDULE V<br>
slide13. 13 CODE - GUIDE TO PROFESSIONAL CONDUCT GUIDELINES OF PROFESSIONAL CONDUCT
ROLE AND FUNCTIONS
DUTIES
MANNER OF APPOINTMENT
TERM/ RE-APPOINTMENT
RESIGNATION OR REMOVAL
SEPARATE MEETINGS
EVALUATION MECHANISM
BOARD COMMITTEES<br>
slide14. 14 ROLE AND FUNCTIONS-INDEPENDENT DIRECTORS help in bringing an independent judgment to bear on the Board’s deliberations especially on issues of strategy, performance, risk management, resources, key appointments and standards of conduct;
bring an objective view in the evaluation of the performance of board and management;
scrutinize the performance of management in meeting agreed goals and objectives and monitor the reporting of performance;
satisfy themselves on the integrity of financial information and that financial controls and the systems of risk management are robust and defensible;
safeguard the interests of all stakeholders, particularly the minority shareholders;
balance the conflicting interest of the stakeholders;
determine appropriate levels of remuneration of executive directors, key managerial personnel and senior management and have a prime role in appointing and where necessary recommend removal of executive directors, key managerial personnel and senior management;
moderate and arbitrate in the interest of the company as a whole, in situations of conflict between management and shareholder’s interest.<br>
slide15. 15 DUTIES-INDEPENDENT DIRECTORS undertake appropriate induction and regularly update and refresh their skills, knowledge and familiarity with the company;
seek appropriate clarification or amplification of information and, where necessary, take and follow appropriate professional advice and opinion of outside experts at the expense of the company;
strive to attend all meetings of the Board of Directors and of the Board committees of which he is a member;
participate constructively and actively in the committees of the Board in which they are chairpersons or members;
strive to attend the general meetings of the company;
where they have concerns about the running of the company or a proposed action, ensure that these are addressed by the Board and, to the extent that they are not resolved, insist that their concerns are recorded in the minutes of the Board meeting;
keep themselves well informed about the company and the external environment in which it operates;
not to unfairly obstruct the functioning of an otherwise proper Board or committee of the Board;
pay sufficient attention and ensure that adequate deliberations are held before approving related party transactions and assure themselves that the same are in the interest of the company;
ascertain and ensure that the company has an adequate and functional vigil mechanism and to ensure that the interests of a person who uses such mechanism are not prejudicially affected on account of such use;
report concerns about unethical behavior, actual or suspected fraud or violation of the company’s code of conduct or ethics policy.<br>
slide16. 16 Regulation 25 of SEBI (LODR) Regulations, 2015: Obligations with respect to Independent Directors No person shall be appointed or continue as an alternate director for an independent director of a listed entity with effect from October 1, 2018.
The maximum tenure of independent directors shall be in accordance with the Companies Act, 2013 and rules made thereunder, in this regard, from time to time.
The appointment, re-appointment or removal of an independent director of a listed entity, shall be subject to the approval of shareholders by way of a special resolution.
The independent directors of the listed entity shall hold at least one meeting in a financial year, without the presence of non-independent directors and members of the management and all the independent directors shall strive to be present at such meeting.
The listed entity shall familiarise the independent directors through various programmes about the listed entity, including the following:
(a) nature of the industry in which the listed entity operates;
(b) business model of the listed entity;
(c) roles, rights, responsibilities of independent directors; and
(d) any other relevant information.<br>
slide17. 17 DIRECTORS AND OFFICERS LIABILITY INSURANCE If the Independent Director is found liable, either actively or passively, for any errors which have caused financial grief to any stakeholder, they will be held responsible. Independent Directors may have to contend with legal implications involving considerable financial expenses for their defense due to the sensitive nature of their work.
D & O LIABILTY INSURANCE POLICY can come to the rescue. A Directors and Officers Liability Policy covers the financial liability incurred by Independent Directors for any mistakes that they commit in the discharge of their duties. The policy covers:
Litigation costs
Settlement paid to third parties who filed the lawsuit
Personal liability suffered by Independent Directors
Expenses on regulatory or administrative inquiries launched on Independent Directors
Expenses incurred on public relations activities<br>
slide18. 18 ONLINE TEST FOR ID<br>
slide19. 19 ONLINE PROFICIENCY SELF ASSESSMENT TEST CG has notified “The Indian Institute of Corporate Affairs (IICA)” under Section 150(1) of the Companies Act, 2013 to conduct Online Proficiency Self-Assessment. IICA by complying with below rules, as amended from time to time, will conduct the test through the Independent Director’s Databank (Rule 6 of the Companies (Appointment and Qualification of Directors) Rules, 2014)
This test will be based on all relevant topics on functioning of an individual acting as an Independent Director, such as Companies Law Securities Law Basic Accountancy Corporate Governance Passing Criteria : Aggregate 50%<br>
slide20. 20<br>